Quarterly Results Cast Shadow Over Sun

Since Jonathan Schwartz first took the helm at Sun Microsystems in 2004 -- first as president and COO, then to CEO in 2005 -- analysts and industry watchers have ascribed a new jauntiness to Sun's step.

That company stride seems to have broken. Sun's latest quarterly report, released last week, included a $34 million loss, disclosed plans to lay off as many as 2,500 more employees, and hinted that -- with respect to the rest of its 2008 fiscal year -- happy days won't be here again soon.

How could Sun -- which posted a $67 million profit during the year-ago quarter, and which (during Schwartz's Q2 earnings call with analysts) went so far as to reassure Wall Street that it would probably remain ship-shape, even with growing economic uncertainty -- have fallen so flat?

Chalk it up precisely to uncertainty, both at Sun and among U.S. technology buyers. "There appears to be a number of customers whose spending plans were uncertain," conceded Sun CFO Mike Lehman during a conference call with analysts.

On the other hand, analysts say, what's ailing Sun isn't anything terminal. Still, industry veteran Jonathan Eunice, a senior IT advisor with Illuminata, said it's bad. Very bad.

"There's no question, a loss is a disaster, especially when coupled with a retreat from optimism about near-term prospects," he commented, adding that Sun's performance is "Bad with a capital ‘B' if only for the change in tone, topic, and attitudes of everyone involved."

According to Eunice, this means that Sun's most important assets -- its people -- spend more time worrying about job security than job performance. In spite of what Schwartz himself has accomplished during his tenure (which saw Sun pull the trigger on at least two mega-acquisitions -- StorageTek and MySQL -- as well as pursue several cutting-edge initiatives), it has investor's second-guessing the Sun chief's job performance as well as the abilities of other executives.

The loss also doesn't do much to reassure current and potential customers. "While customers and partners don't usually take just one small quarterly loss that hard, they have to wonder if this will become a pattern," Eunice pointed out.

About the Author

Stephen Swoyer is a contributing editor. He can be reached at [email protected].